Sole Proprietorship: Turning a Person into a Business

Sunday

Aug 6, 2017 at 6:47 AM

By Zachary Brown

I meet a lot of skilled Gastonians as a bank manager in our community. I meet chefs who cook delicious food. I talk to mechanics who can fix parts of cars I didn’t even know existed. However, because they haven’t been properly informed, they don’t know how to organize into a small business.

Knowing how to properly organize your business can be the difference between success and failure. It effects the way a company grows, contracts, files with state and federal governments, what tax advantages it receives, and what taxes it owes. So, in the next few weeks we will review the different types of options one has to organize a business under. We will start with the least complicated: sole proprietorship.

Sole proprietorship, in its most basic form, turns an individual into a business. Which means all liability for that company falls on the individual who owns it. The company files under the individual Social Security number. All financial obligations and windfalls are the responsibility of the business owner.

The good news is that it is very simple to operate under a sole proprietor. You simply establish an account using your individual Social Security number styled like a tax identification number for a business. If you’d like to operate under a business name instead of your actual name, simply go to the clerk of courts of the county you operate in and file an assumed name certificate, otherwise known as a DBA. This allows your clients to write checks in the name of your business instead of to your name.

Without having to hire a lawyer, file with the state, or other high cost start up fees, a sole proprietorship is a good way to establish a business. It allows you to differentiate expenses for tax purposes and helps with organization for a small business entity. Keep in mind that this type of organization does not protect the owner against liability. The owner is personally responsible for the dealings of the business, which is a high level of exposure. Next week, we will detail the Limited Liability Corporation that offers more cover to its signers.

Zachary Brown is chairman of Junior Achievement of Gaston County.

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